Home About Latest Browse RSS Advanced Search

Board of Governors of the Federal Reserve System (U.S.)
International Finance Discussion Papers
The Heterogeneous Effects of Government Spending : It’s All About Taxes
Axelle Ferrière
Gaston Navarro
Abstract

This paper investigates how government spending multipliers depend on the distribution of taxes across households. We exploit historical variations in the financing of spending in the U.S. since 1913 to show that multipliers are positive only when financed with more progressive taxes, and zero otherwise. We rationalize this finding within a heterogeneous-household model with indivisible labor supply. The model results in a lower labor responsiveness to tax changes for higher-income earners. In turn, spending financed with more progressive taxes induces a smaller crowding-out, and thus larger multipliers. Finally, we provide evidence in support of the model’s cross-sectional implications.


Download Full text
Cite this item
Axelle Ferrière & Gaston Navarro, The Heterogeneous Effects of Government Spending : It’s All About Taxes, Board of Governors of the Federal Reserve System (U.S.), International Finance Discussion Papers 1237, 22 Aug 2018.
More from this series
JEL Classification:
Subject headings:
Keywords: Fiscal stimulus ; Government spending ; Transfers ; Heterogeneous agents
DOI: 10.17016/IFDP.2018.1237
For corrections, contact FRB Librarian ()
Fed-in-Print is the central catalog of publications within the Federal Reserve System. It is managed and hosted by the Economic Research Division, Federal Reserve Bank of St. Louis.

Privacy Legal